REASONS FOR GENERATION AND ACCUMULATION OF OBSOLETE, SURPLUS AND SCRAP ITEMS - Production and Operations Management

Following are the reasons for the generation and accumulation of obsolete, surplus and scrap items:

Changes in product design: This may lead to some items getting invalid so far as the final product is concerned. Hence, the entire stock of such items as surplus obsolete.

Rationalization: Sometimes raw materials are renationalized so as to minimize variety and simplify procurement. The rationalization process renders some items as surplus or obsolete.

Cannibalization: When a machine breakdown occurs, sometimes it is rectified using parts of an identical machine which is not functioning due to various reasons. This process of ‘cannibalization’ is not uncommon in many project-based industries. When continued unchecked, this results in obsolete and scrap items.

Faulty planning and forecasting: The marketing department may have projected a sales forecast which might be on the higher side. Any material planning has to be based on sales forecasts and this could result in surplus items. Wrong indenting by the user departments also leads to accumulation.

Faulty purchase practices: Sub-optimizing decisions like buying in bulk to take care of discounts and transportation economy without taking into account factors such as, shelf life, storage space requirements and technological changes once again lead to the accumulation of surplus and obsolete stocks.

Other causes: Many items are held as insurable spares for many years without any consumption. Faulty store-keeping methods, without adequate preservation, lead to spoilage. Inferior materials handling, improper codification and poor manufacturing methods also result in obsolete, surplus and scrap items. Poor maintenance of machine tools may result in excessive tools wear and greater process scrap.